PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
FINANCIAL STATEMENTS AS OF JUNE 30, 2008
AND COMPARATIVE INFORMATION
CONTENTS
Limited review report on interim financial statements
Legal information
Balance sheet
Statement of income
Statement of cash flows
Notes to the financial statements
Exhibits A, B, C, D, E, F, G, H and I
Reporting summary
Supplementary information required by the Buenos Aires Stock Exchange
Translation from the original prepared in Spanish for publication in Argentina
REVIEW REPORT ON INTERIM FINANCIAL STATEMENTS
To the Legal Representative of
Pan American Energy LLC (Argentine Branch)
Av. Leandro N. Alem 1180 - 11th Floor
Buenos Aires, Argentina
We reviewed the accompanying balance sheet of Pan American Energy LLC (Argentine Branch) as of June 30, 2008, and
the related statements of income and cash flows, notes 1 to 15 and exhibits A, B, C, D, E, F, G, H and I for the
six-month period then ended, comparative with the same period of the prior year, and in the case of the balance sheet
and the related notes and exhibits, with the financial statements as of December 31, 2007. The preparation of these
financial statements is the responsibility of the Legal Representative of the Branch.
We conducted our review in accordance with auditing standards generally accepted in the Republic of Argentina
applicable to the limited scope review of interim financial statements. A review of interim financial information
consists principally in applying analytical procedures to the accounting data and making inquiries of the individuals
responsible for its preparation. As a review is substantially less in scope than an audit of annual financial
statements, we do not express an opinion on the financial position of the Branch as of June 30, 2008, nor on the results
of its operations and the cash flows for the six-month period then ended.
The accompanying consolidated financial statements were translated into the English language from those issued in
Spanish in conformity with accounting principles and reporting practices adopted by the regulations of the National
Securities Commission ("CNV") of Argentina.
In relation to the financial statements as of December 31, 2007, presented for comparative purposes, we issued an
unqualified opinion on March 7, 2008. In addition, on August 10, 2007, we issued an unmodified review report on the
financial statements for the six months ended June 30, 2007, also presented for comparative purposes.
Based on our review, we report that the financial statements as of June 30, 2008 and for the six months then ended
referred to in the first paragraph consider all the significant facts and circumstances of which we became aware during
our review and in relation to them we have no significant observations.
In compliance with rules and regulations in force, we report that:
a) the financial statements comply with the provisions of the Corporations Law and the regulations on accounting
documentation of the National Securities Commission, they are transcribed in the Inventory Book and they derive from the
accounting records of the Branch maintained in the Republic of Argentina timely authorized by the Inspection Board of
Legal Entities (IGJ). Following its submission of the special report required by section 287 of Resolution 7/2005 of the
IGJ, the Branch has not received the certification from such authorities acknowledging compliance. The information
systems used to process the financial information included in the financial statements are maintained under the security
and integrity conditions based on which they were authorized;
b) we read the reporting summary (sections "Balance sheet items", "Income statement items", and "Ratios") and the
supplementary information to the financial statements required by section 68 of the regulations of the Buenos Aires
Stock Exchange and, based on our review as far as it relates to our area of responsibility, we have no observations, and
c) as of June 30, 2008, the accrued liability for pension contributions arising from the accounting records amounted
to $ 7,539,693, no amounts being due as of that date.
Buenos Aires, August 8, 2008
SIBILLE
N�stor R. Garc�a
Partner
FINANCIAL STATEMENTS as of June 30, 2008 for the six-month period beginning January 1, 2008 and ended June 30,
2008 and comparative information
Stated in pesos
Legal address of the Branch: Av. Leandro N. Alem 1180 - 11(th)floor - Buenos Aires
Main activity of the Branch: Oil and gas exploration and production
Date of registration with the Public Registry of Commerce: October 17, 1997
Registration number with the Inspection Board of Legal Entities: 1868, Book 54, Volume B of Foreign Companies
Capital registered with the Inspection Board of Legal Entities: $ 200,000,000 under number 1257, Book 57, Volume B
of Foreign Companies, and $ 21,779,007 under number 2106, Book 58, Volume B of Foreign Companies (Note 8)
Date of registration of capital with the Inspection Board of Legal Entities: $ 200,000,000 on July 11, 2003 and $
21,779,007 on December 12, 2005
Subscribed capital (paid in full): $ 221,779,007
HEAD OFFICE
Name: Pan American Energy LLC
Legal address: The Corporation Trust Company, Trust Corporation Center, 1209 Orange Street, Wilmington, Delaware -
19801 - United States of America
Main activity: Oil and gas exploration and production
BALANCE SHEET as of June 30, 2008 and as of December 31, 2007 (in pesos)
ASSETS 6/30/2008 12/31/2007
CURRENT ASSETS
Cash on hand and in banks (Note 4 a) 2,783,348 33,987,608
Investments (Exhibit C) 612,422,155 451,093,477
Accounts receivable (Note 4 b) 998,793,591 497,884,676
Other receivables (Note 4 c) 116,873,867 88,459,852
Inventories (Note 4 d) 196,992,560 189,479,197
Total current assets 1,927,865,521 1,260,904,810
NON CURRENT ASSETS 6/30/2008 12/31/2007
Other receivables (Note 4 e) 53,540,969 53,139,229
Investments (Exhibit C) 8,475,497 9,533,846
Property, plant and equipment (Exhibit A) 8,386,223,298 7,383,251,413
Intangible assets (Exhibit B) 372,080 390,469
Total non current assets 8,448,611,844 7,446,314,957
Total assets 10,376,477,365 8,707,219,767
LIABILITIES 6/30/2008 12/31/2007
CURRENT LIABILITIES
Accounts payable (Note 4 f) 561,744,327 645,049,836
Loans (Note 4 g) 1,022,752,105 745,307,677
Payroll and social security contributions 32,502,172 42,426,954
Taxes payable (Note 4 h) 417,815,161 271,153,439
Other liabilities (Note 3 2 j) 382,833 -
Provision for future compensation to personnel(Exhibit D) 2,476,055 2,461,743
Total current liabilities 2,037,672,653 1,706,399,649
NON CURRENT LIABILITIES
NON CURRENT LIABILITIES 6/30/2007 12/31/2008
Accounts payable (Note 4 i) 53,698,680 49,129,413
Loans (Note 4 j) 3,433,601,875 2,984,559,219
Other liabilities (Note 3 2 j) 141,308,165 128,930,896
Deferred tax (Note 11) 363,033,091 389,697,321
Provision for future compensation to personnel(Exhibit D) 16,437,790 15,241,426
Provision for environmental remediation (Exhibit D) 84,303,753 82,182,464
Accruals (Exhibit D) 21,843,737 20,217,498
Total non current liabilities 4,114,227,091 3,669,958,237
Total liabilities 6,151,899,744 5,376,357,886
Account with Head Office (Note 7) 3,763,338,614 2,869,622,874
Capital allocated to the Branch (Note 8) 221,779,007 221,779,007
Capital adjustment 239,460,000 239,460,000
Total 10,376,477,365 8,707,219,767
The accompanying notes and exhibits are an integral part of these financial statements.
STATEMENT OF INCOME for the six-month period beginning January 1 and ended June 30, 2008 comparative with the same
period of the prior year (in pesos)
2008(six months) 2007(six months)
Sales 3,158,558,718 2,610,490,344
Cost of sales (Exhibit E) (1,635,378,855) (1,260,676,380)
Gross profit 1,523,179,863 1,349,813,964
Administrative expenses (137,669,821) (122,951,710)
(Exhibit G)
Operating income 1,385,510,042 1,226,862,254
Financial results
Generated by assets
Interest 7,479,876 19,930,813
Exchange gains/losses ( 53,753,863) 8,508,614
Other financial results 77,719 ( 46,196,268) 581,081 29,020,508
Generated by liabilities
Interest (144,743,262) (126,163,975)
Exchange gains/losses 185,494,328 ( 29,119,588)
Other financial results (27,526,618) 13,224,448 (12,260,073) ( 167,543,636)
Other income and expenses - 9,128,464 (15,304,663)
net
Income before income tax 1,361,666,686 1,073,034,463
Income tax expense - current ( 477,960,867) ( 415,247,332)
(Note 11)
Income tax benefit - deferred 26,664,230 42,188,152
(Note 11)
Net income (Note 7) 910,370,049 699,975,283
STATEMENT OF CASH FLOWS for the six-month period beginning January 1 and ended June 30, 2008 comparative with the
same period of the prior year (in pesos)
2008 2007
(6 months) (6 months)
Cash provided by operations:
Net income 910,370,049 699,975,283
Adjustment to reconcile net income with the cash provided by
operations
Depreciation of Property, Plant and Equipment 389,728,587 405,625,069
Amortization of intangible assets 18,389 1,369,020
Income tax expense 477,960,867 415,247,332
Net increase in allowances for bad debtors,
lawsuits and obsolescence of materials 1,396,840 593,694
(Loss) gain on property, plant and equipment ( 4,523,589) 5,960,286
Increase in provision for future compensation to personnel 2,491,014 2,486,475
Net increase in the provision for environmental remediation 1,079,097 2,508,361
Other non-cash items (1) ( 68,055,683) 66,489,432
Changes in assets, liabilities and account with Head Office:
(Increase) decrease in accounts receivable ( 500,908,915) 29,701,898
(Increase) decrease in inventories ( 6,973,569) 15,181,672
(Increase) decrease in other current receivables ( 28,414,015) 27,426,731
Increase in other non current receivables ( 401,740) ( 30,377)
Increase (decrease) in accounts payable, payroll and social 25,246,115 ( 11,916,611)
security contributions,taxes payable and other
liabilities
Compensation paid to personnel for benefit plans ( 1,280,338) ( 1,097,209)
Payments related to lawsuits ( 310,395) -
Income tax paid (432,446,182) (611,040,196)
Net cash provided by operations 764,976,532 1,048,480,860
Cash used in investing activities:
Decrease (increase) in long-term investments 1,058,349 ( 2,876,891)
Acquisition of property, plant and equipment (1,394,022,362) ( 986,825,798)
Additions of intangible assets - ( 67,390)
Collection due to the sale of property, plant and equipment 6,887,671 6,961,673
Cash used in investing activities (1,386,076,342) (982,808,406)
Cash provided by financing activities:
Increase in loans (net) 767,878,537 46,159,370
Net activity with Head Office (16,654,309) (34,254,830)
Cash provided by financing activities 751,224,228 11,904,540
Net increase in cash 130,124,418 77,576,994
Cash at beginning of period (2) 485,081,085 249,407,237
Cash at the end of the period (2) 615,205,503 326,984,231
2008 2007
6 months 6 months
(1) It is made up of:
Exchange gains/losses and other financial results
relating to loans and other ( 41,391,453) 108,677,584
Deferred income tax benefit ( 26,664,230) ( 42,188,152)
Total ( 68,055,683) 66,489,432
(2) Cash and banks plus investments becoming due in a
period not exceeding three months.
NOTES TO THE FINANCIAL STATEMENTS as of June 30, 2008 and comparative information (in pesos)
NOTE 1 - THE BRANCH
Pan American Energy LLC (Argentine Branch) is engaged in the exploration, development and production of
hydrocarbons.
On October 30, 1997, a definitive agreement for the transfer of assets and liabilities was entered into between
Amoco Argentina Oil Company (Argentine Branch) and Pan American Energy LLC (Argentine Branch) hereinafter "the Branch",
whereby Amoco Argentina Oil Company (Argentine Branch) transferred its business consisting of assets and liabilities to
the Branch, effective on October 8, 1997.
On May 1, 1998 a definitive agreement for the transfer of assets and liabilities was entered into between Pan
American Continental S.R.L. and the Branch, whereby Pan American Continental S.R.L. transferred to the Branch its
business consisting of the assets and liabilities except for the name Pan American Continental.
NOTE 2 - OPERATIONS OF THE BRANCH
The following table summarizes the main operations, blocks and joint ventures in which the Branch is or was involved
during the six-month period ended June 30, 2008.
Activity Operations Interest Participation
Oil and gas production and Cerro Drag�n 100.00% Operator
development
Piedra Clavada 100.00% Operator
Koluel Kaike 100.00% Operator
Lindero Atravesado 62.50% Operator
Anticlinal Funes 80.00% Operator
Acambuco 52.00% Operator
Aguada Pichana 18.18% Non operator
San Roque 16.47% Non operator
Estancia La Escondida (1) 25.00% Non operator
Oil and gas exploration and Acambuco "B" 100.00% Operator
development
Bandurria 18.18% Non operator
Costa Afuera Argentina "CAA-40" 50.00% Non operator
Costa Afuera Argentina "CAA-46" 50.00% Non operator
Centro Golfo San Jorge Marina Chubut 90.00% Operator
Centro Golfo San Jorge Marina Santa Cruz 90.00% Operator
Explanations:
(1) The Joint Venture agreement (UTE) governing the relationships between the holders of concession states that
their participating interests in rights, obligations and interests inherent in the property including production, will
be distributed based on the depth from which production is obtained: in the deep area, the Branch has a 75% interest and
the co-holder has the remaining 25%; in the shallow area from which current total production is obtained, the Branch has
a 25% interest and the co-holder the remaining 75%; and in the area "Descubrimiento El Zanj�n", both parties hold a 50%
interest. The average interest described grants the Branch a 50% interest in the rights over the property, regardless
the percentage thereof in the concession.
NOTE 3 - ACCOUNTING PRINCIPLES
3.1 Reporting currency
In accordance with Decree 664/2003 and General Resolution No. 441/2003 of the National Securities Commission
("Comisi�n Nacional de Valores" or CNV), the Branch discontinued the application of inflation accounting as from March
1, 2003.
From January 1, 2002 to February 28, 2003, the Branch applied the inflation accounting methodology set forth by
Technical Resolution No. 6, amended by Technical Resolutions Nos. 17 and 19 of the Argentine Federation of Professional
Councils of Economic Sciences (FACPCE) and by the Professional Council of Economic Sciences of the City of Buenos Aires
(CPCECABA), using indexes derived from the Internal Wholesale Price Index.
3.2 Valuation and presentation principles
a) Presentation
The financial statements are presented in accordance with the presentation principles established by the accounting
standards generally accepted in the Republic of Argentina and pursuant to the provisions of the CNV.
Investments to become due or to be realized in the short term (within 3 months of period end) are considered a cash
equivalent in the statement of cash flows.
Certain reclassifications were made to the financial statements presented as comparative information to conform them
to the presentation used in this period.
b) Participating interest in joint ventures
The Branch is engaged in exploration and production activities in certain areas through its participation in joint
ventures with other companies. The account balances reflecting the joint ventures' assets, liabilities, income and
expenses are proportionately consolidated in these financial statements.
c) Foreign currency
Assets and liabilities denominated in foreign currency as listed in Exhibit F have been stated in Argentine Pesos at
the exchange rate prevailing at the end of each period. The resulting exchange gains/losses are presented in the
financial results line (provided by either assets or liabilities, as applicable) of the Statement of Income.
d) Inventories
Crude oil is stated at reproduction cost. Spare parts, materials and raw materials are stated at the latest
acquisition cost. Goods in transit are stated at acquisition cost plus import expenses. Advances to suppliers are valued
at the amounts actually incurred.
The carrying value of inventories, taken as a whole and after considering the allowance for obsolescence (see Note 3
2 g), does not exceed their recoverable value.
e) Property, plant and equipment
Property, plant and equipment are stated at acquisition cost as indicated in Note 3.1., less the related accumulated
depreciation. The acquisition cost includes all the necessary costs incurred in order to put the assets in working
condition.
Depreciation is calculated by applying the straight-line method over the estimated useful lives of the assets and/or
the duration of the contracts, as applicable, except for production wells, equipment and services, which are depreciated
as per the units of production method.
The pre-operating costs of the properties in the exploration stage, except for geology and geophysics related
expenses that are charged to the Statement of Income as incurred, remain capitalized for a given period based on the
characteristics of each property, without exceeding five years considered as from the completion of the exploration
stage or, if applicable, as from production interruption, unless:
1. it is expected that explored areas will proceed to the commercial production stage, in which case the referred
costs remain capitalized, or
2. during the referred five year period, management estimates that commercial production will not be feasible, in
which case, the referred costs are expensed.
For Property, plant and equipment existing as of January 6, 2002, the acquisition or construction of which resulted
in outstanding liabilities denominated in foreign currency - exchange gains/losses resulting from restating such
liabilities totaling $1,832,303,600 through July 28, 2003 were capitalized pursuant to specific accounting principles,
based on the determination of the direct or indirect ratio between the assets subject to capitalization and the
outstanding liabilities in foreign currency. The assets or group of assets eligible for the capitalization of exchange
gains/losses have remained unchanged. Such capitalization of exchange gains/losses was performed in proportion to the
balance of the original value of the referred assets not subject to depreciation. Additionally, exchange gains and
losses were capitalized up to the limit arising from the comparison between the replacement or reproduction cost of the
assets and their recoverable value.
For the purposes of presenting the financial statements in constant currency (see Note 3.1), the capitalized
exchange gains/losses amounting to $ 1,832,303,600 are considered an anticipated inflation adjustment until such
differences are absorbed thereby. The excess of capitalized exchanges losses over the amounts in constant currency
totals $ 85,358,131 as of June 30, 2008.
The net carrying value of property, plant and equipment, taken by group of assets of similar characteristics, does
not exceed their estimated value in use based on the information available as of the date of issuance of the financial
statements.
f) Intangible assets
These are pre-production geological expenditures and acquisition cost of blocks valued at restated cost as indicated
in Note 3.1, less the related accumulated amortization. Amortization is calculated as per the units of production
method.
g) Allowances, Provisions and Accruals
Allowances deducted from assets:
* For bad debtors: they are determined following the detailed analysis of the credit status of each customer.* For
obsolescence of materials: the Branch creates an allowance for those assets evidencing significant slow movement based
on a specific analysis. Accruals:
- For lawsuits: they are determined considering the potential costs of those lawsuits filed against the Branch based
on the opinion of the legal counsels.
Provisions:
- For future compensation to personnel: they are estimated as a percentage of compensation paid, calculated in terms
of actuarial methods, and can be applied to compensate employees of the Branch who have complied with certain seniority
requirements defined by the Branch. Payments are debited from the related provision.
- For environmental remediation: calculated on the basis of well-abandonment forecasts until the expiration of
agreements, at present values.
h) Income tax
The Branch applies the deferred tax method to account for income tax. Based on the referred method, the current
income tax is calculated by applying the rates prevailing as of June 30, 2008 and 2007 on taxable income; and the future
tax effect of the temporary differences in the book and tax values of assets and liabilities and the tax loss
carryforwards, if any, are recognized as deferred tax assets or liabilities. The adjustment for inflation of property,
plant and equipment is considered to be a temporary difference for deferred tax computations.
The deferred tax assets are recognized only to the extent of their recoverability.
i) Use of estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires
that the Branch management makes estimates about the value of certain assets and liabilities, including contingent
liabilities, as well as the amounts informed of certain income and expenses generated during the period.
The final amounts may differ from the estimates used in the preparation of the financial statements.
j) Defined benefit pension plans
The Branch implemented a pension plan for the benefit of its personnel called "Plan Puente" or "Bridge Plan". The
amount accrued upon the implementation of such plan amounts to $ 141,690,998 ($ 128,930,896 as of December 31, 2007)
presented under Other current liabilities and Other non current liabilities, out of which the amount of $ 12,951,519
accrued in the six-month period ended June 30, 2008. Such amount is made up of $ 257,478,353 of nominal value less $
115,292,099 corresponding to the financial effect from the discount to present value and payments in the amount of $
495,256.
k) Revenue recognition
Revenue derived from the sale of hydrocarbons is recognized when the significant risks and rewards of ownership have
been transferred to the purchaser.
The Branch uses the production method to recognize revenues from the sale of oil. In those cases where the Branch
has a shared interest with other producers, revenues are recorded upon the basis of the interest held in each joint
venture.
In order to recognize revenues from the sale of gas, the Branch uses the sales method, whereby these revenues are
recorded on the basis of the actual volumes delivered to purchasers irrespective of whether they result form the
Branch's own output or from the output shared with other producers.
l) Lease agreements
The Branch leases the space occupied by its offices, which agreements are of an operating nature and, therefore, the
expenses incurred are recognized in the Statement of income to the extent they are accrued.
The amount of the leases, broken down by maturity dates, is reported below:
Nominal value
Up to one year US$ 2,658,732 and $ 1,207,798
Over one year and up to five years US$ 1,266,933 and $ 1,172,000
During the six-month period ended June 30, 2008, the Branch recognized an expense of $ 4,753,600 related to such
lease agreements presented in the line Buildings Rentals and Maintenance in Exhibit G.
NOTE 4 - BREAKDOWN OF CERTAIN BALANCE SHEET ACCOUNTS
06/30/2008 12/31/2007
ASSETS
CURRENT ASSETS
a) Cash and banks
Cash on hand in local currency 218,832 219,522
Cash on hand in foreign currency (Exhibit F) 153,858 185,683
Cash in banks in local currency 2,126,511 33,403,569
Cash in banks in foreign currency (Exhibit F) 284,147 178,834
Total 2,783,348 33,987,608
b) Accounts receivable
06/30/2008 12/31/2007
Accounts receivable in local currency 98,662,069 120,830,313
Allowance for bad debtors in local currency (Exhibit D) ( 10,197,186) ( 10,197,186)
Accounts receivable in foreign currency (Exhibit F) 907,773,601 387,251,549
Related companies in foreign currency(Note 9 and Exhibit F) 2,555,107 -
Total 998,793,591 497,884,676
c) Other receivables
06/30/2008 12/31/2007
Loans to personnel 8,345,732 9,436,752
Tax credits 18,781,520 11,845,980
Expenses recoverable in local currency 6,865,582 5,105,747
Expenses recoverable in foreign currency (Exhibit F) 2,980,869 1,923,308
Prepaid expenses in local currency 15,782,842 14,164,348
Miscellaneous in local currency 40,765,620 34,220,853
Miscellaneous in foreign currency (Exhibit F) 12,053,037 9,476,145
Affiliated companies in foreign currency (Note 9and Exhibit F) 11,298,665 2,286,719
Total 116,873,867 88,459,852
d) Inventories
06/30/2008 12/31/2007
Crude oil in stock 105,606,801 116,679,969
Spare parts, materials and raw materials 66,047,419 56,281,193
Subtotal (Exhibit E) 171,654,220 172,961,162
Allowance for obsolescence of materials (Exhibit D) (2,769,624) (3,309,418)
Subtotal 168,884,596 169,651,744
Goods in transit 24,367,594 14,921,350
Advances to suppliers in local currency 3,635,960 4,333,388
Advances to suppliers in foreign currency (Exhibit F) 104,410 572,715
Total 196,992,560 189,479,197
NON CURRENT ASSETS
e) Other receivables
06/30/2007 12/31/2008
Loans to personnel 13,483,527 11,037,708
Prepaid expenses in local currency 642,191 1,377,539
Miscellaneous in local currency 26,230,362 26,419,281
Miscellaneous in foreign currency (Exhibit F) 13,184,889 14,304,701
Total 53,540,969 53,139,229
LIABILITIES
CURRENT LIABILITIES
f) Accounts payable
06/30/2008 12/31/2007
Trade payables in local currency 378,069,734 440,920,083
Trade payables in foreign currency (Exhibit F) 159,645,493 159,701,798
Expenses payable in local currency 19,392,588 39,244,409
Affiliated companies in foreign currency (Note 9 andExhibit F) 4,636,512 5,183,546
Total 561,744,327 645,049,836
g) Loans
06/30/2008 12/31/2007
Unsecured notes payable in local currency 240,195,057 263,824,044
Unsecured notes payable in foreign currency(Exhibit F) 708,636,501 405,650,487
Interest accrued on bonds and notes payable in foreigncurrency 73,920,547 75,833,146
(Exhibit F)
Total 1,022,752,105 745,307,677
h) Taxes payable
096/30/2008 12/31/2008
Income tax provision net of advanced payments 263,543,811 174,142,115
Tax on sales and production 83,631,700 87,217,728
Other 70,639,650 9,793,596
Total 417,815,161 271,153,439
NON CURRENT LIABILITIES
i) Accounts payable
06/30/2008 12/31/2007
Miscellaneous liabilities in local currency 37,030,483 31,777,958
Miscellaneous liabilities in foreign currency (Exhibit F) 16,668,197 17,351,455
Total 53,698,680 49,129,413
j) Loans
06/30/2008 12/31/2007
Bonds in foreign currency (Exhibit F) 1,058,750,000 1,102,150,000
Unsecured notes payable in foreign currency(Exhibit F) 2,374,851,875 1,882,409,219
Total 3,433,601,875 2,984,559,219
NOTE 5 - ISSUANCE OF BONDS
On February 11, 1997, Amoco Argentina Oil Company (Argentine Branch) issued the Second Series of bonds in the amount
of US$ 100,000,000 due in ten years, at an annual 6.75% rate. The bonds were paid upon maturity on February 1, 2007.
Such issuance was made under the short and medium term bond program for a total maximum amount of US$ 200,000,000
authorized by the CNV through Resolution No. 10982 on July 13, 1995.
As a result of the transfer of assets and liabilities referred to in the second paragraph of Note 1 to these
financial statements, Amoco Argentina Oil Company (Argentine Branch) transferred the above mentioned bonds to Pan
American Energy LLC (Argentine Branch). Such bonds were guaranteed by BP Company North America Inc. until repayment in
February 2007.
On February 21, 2002, through Resolution No. 14123, the CNV authorized the Global Program for the Issuance of Bonds
of Pan American Energy LLC (Argentine Branch) (the "Global Program") in the total amount of US$ 1,000,000,000 and for a
five-year term.
On October 27, 2004, the Branch issued the Bonds Class 3 in the amount of US$100,000,000 under the Global Program.
The bonds become due in five years (October 27, 2009) with a 7.125% annual fixed interest rate to be paid on a
half-yearly basis. The price of the issuance was 99.483% of the nominal value. The funds obtained from this issuance
were allocated to investments in property, plant and equipment and repayment of loans.
On August 9, 2006, the Branch issued the Bonds Class 4 in the amount of US$ 250,000,000 under the Global Program, to
be repaid in two equal installments becoming due on February 9, 2011 and February 9, 2012, with interest accruing at an
annual fixed interest rate of 7.75% to be paid on a half-yearly basis. The price of the issuance was 100.00% of the
nominal value. The funds obtained from this issuance were allocated to investments in property, plant and equipment and
repayment of loans.
The Bonds Class 3 and Class 4 are guaranteed by Pan American Energy LLC.
NOTE 6 - OTHER FINANCIAL LIABILITIES
On July 11, 2005, the Branch obtained from the International Finance Corporation (IFC) a loan in the amount of US$
250,000,000 guaranteed by Pan American Energy LLC and consisting of three tranches:
- "A" in the amount of US$ 100,000,000, with interest accruing at an annual fixed rate of 7.56%, through an interest
rate swap with IFC, amortizable on a six-month installments basis and becoming due in July 2015;
- "B" in the amount of US$ 135,000,000, at an annual fixed rate of 6.97%, through an interest rate swap with IFC,
amortizable on a six-month installments basis, and becoming due in July 2012, and
- "C" in the amount of US$ 15,000,000, at an annual fixed base rate of 5.66% plus additional interest calculated in
relation to Pan American Energy LLC�s economic performance, becoming due in July 2016.
The first repayment of principal for tranches "A" and "B" was made on January 15, 2007.
The funds obtained were used to partially fund the 2005 investment program in San Jorge Gulf.
On July 13, 2007, the Branch obtained from IFC a loan in the amount of US$ 550,000,000, consisting of two tranches
that accrue interest at a variable rate:
- "A" in the amount of US$ 150,000,000 amortizable on a six-month installments basis and becoming due in April 2018;
and
- "B", Sub-tranch "1" in the amount of US$ 158,500,000 amortizable on a six-month installments basis and becoming
due in April 2014 and Sub-tranch "2" in the amount of US$ 241,500,000 amortizable on a six-month installments basis and
becoming due in April 2015.
The loan is guaranteed by Pan American Energy LLC and the funds obtained are being applied to partially fund the
investment program that the Company will undertake in the Cerro Drag�n area in San Jorge Gulf basin located in the
provinces of Santa Cruz and Chubut.
By December 31, 2007, the amount of US$ 400,000,000 of such loan had been disbursed while the remaining amount of
US$ 150,000,000 was disbursed in January 2008.
On May 21, 2008, the Branch, obtained a loan from an international bank syndicate in the amount of U$S 200,000,000,
the final maturity of which is on May 23, 2011. The loan will be repaid in 3 semiannual principal installments as from
the second year, accruing interest at a variable Libor rate payable every six months.
The bank syndicate was led by Calyon New York Branch, JP Morgan Securities Inc. and ABN AMRO Bank N.V., whereas
Banco Ita� Buen Ayre S.A. acts as the local intermediary bank. Rabobank Nederland New York Branch, Natixis and Export
Development Canada participated as well.
As of June 30, 2008, an amount of U$S 100,000,000 has been disbursed.
The loan is guaranteed by Pan American Energy LLC and the funds obtained must be applied to the payment of property,
plant and equipment and inventories.
The Branch considers that its access to credit lines is appropriate in order to meet its commercial and financial
obligations, even though it presents a negative working capital.
NOTE 7 - ACCOUNT WITH HEAD OFFICE
The changes in the account with Head Office during the six-month periods ended June 30, 2008 and 2007 are as
follows:
Six-month period ended
06/30/2008 06/30/2007
Balance at beginning of period with Head Office 2,869,622,874 1,656,519,921
Net activity with Head Office ( 16,654,309) ( 34,254,830)
Transfer of income for the period 910,370,049 699,975,283
Net changes for the period 893,715,740 665,720,453
Balance at period-end of the account with Head Office (1) 3,763,338,614 2,322,240,374
(1) As of June 30, 2008 and June 30, 2007, the balances are in local currency.
NOTE 8 - CAPITAL ALLOCATED TO THE BRANCH
Pursuant to the Consent Action taken by the members on December 27, 2001, Pan American Energy LLC allocated capital
to the Branch in the amount of $ 200,000,000. Such capital is registered with the Public Registry of Commerce. In
accordance with the Consent Action dated February 1, 2005, Pan American Energy LLC allocated capital to the Branch in
the amount of $ 21,779,007. Such capital contribution represents the contribution of assets and liabilities of the areas
Anticlinal Funes and R�o Barrancas made by Head Office within the scope of the corporate reorganization registered in
the State of Delaware, USA and in the Public Registry of Commerce of the City of Buenos Aires on December 12, 2005 under
number 2106, Book 58, Volume B of Foreign Companies.
NOTE 9 - TRANSACTIONS AND BALANCES WITH AFFILIATED COMPANIES
The transactions and balances with Pan American Energy LLC, the Branch's Head Office, are disclosed in note 7.
The transactions and balances with affiliated companies are detailed below:
2008 2007
(6 months) (6 months)
TRANSACTIONS
Pan American Fueguina S.A.
Financing - 292,303,451
Pan American Sur S.A.
Lending of LPG - 835,883
PAE E & P Bolivia Ltd.
Purchases and hiring of services 6,619,394 329,541
PAE Oil & Gas Bolivia Ltd.
Purchases and hiring of services 2,392,552 463,275
BP West Coast Products LLC
Sales 1,178,522,078 322,280,9
BP America Production Company
Contracted services 2,373,919 1,616,445
06/30/2008 12/31/2007
BALANCES
BP West Coast Products LLC
Accounts receivable 2,555,107 -
PAE E & P Bolivia Ltd.
Other receivables 7,784,671 1,165,277
PAE Oil & Gas Bolivia Ltd.
Other receivables
3,513,994 1,121,442
BP America Production Company
Accounts payable 3,177,131 1,910,240
Pan American Sur S.A.
Accounts payable 1,459,381 3,273,306
NOTE 10 - GUARANTEES AND OTHER COMMITMENTS
In terms of investment commitments, the Branch has not granted any guarantees as of June 30, 2008.
The terms agreed in certain loan agreements include commitments assumed by the Branch referring to the maintenance
of certain indebtedness and debt service ratios and certain restrictions on the distribution of dividends. As of June
30, 2008, the Branch complied with all the commitments assumed in loan agreements.
The Branch signed the agreement entered into between producers and refineries on January 2, 2003 for the stability
of the prices of crude oil, gasoline and gas oil (Resolution No. 85/2003 of the Energy Department), in force until April
30, 2004. The Branch has complied with the quotas set forth in the crude oil agreement. Such deliveries were stated at
spot price upon carrying out the transaction, giving rise to a contingent receivable of $ 10,455,911 as of June 30,
2008, in favor of the Branch, which has not been recorded. Such receivable will be collected when the crude oil WTI
price be lower than US$28.50 per barrel. The price thereof was US$ 140.02 as of June 30, 2008.
On February 27, 2006 the Branch executed an agreement with Shell C.A.P.S.A. whereby Shell agreed to pay the Branch a
total negotiated price of $86,499,326 in connection with deliveries of crude oil made in 2003 and 2004 under the price
stabilization agreement referred to in the preceding paragraph, and $ 14,032,834 as interest accrued. The Branch agreed
to waive further claims in connection with said deliveries. The related revenue was recognized in the year ended
December 31, 2006. Additionally, in September 2007, the Branch executed an agreement with ESSO Petrolera Argentina
S.R.L., whereby such company agreed a total negotiated price of $ 7,966,366 in connection with deliveries of crude oil
made in 2003 and 2004 also under the price stabilization agreement referred to above and $ 2,445,974 as interest. The
Branch agreed to waive further claims in connection with said deliveries. The related revenue was recognized in the
fiscal year ended December 31, 2007.
NOTE 11 - INCOME TAX
The breakdown of the main deferred tax assets and liabilities is as follows:
06/30/2008 12/31/2007
Deferred tax assets
Allowance for materials obsolescence 1,603,835 1,158,296
Provision for future compensation to personnel 13,386,964 6,093,622
Accrual for lawsuits 7,764,666 7,278,725
Provision for environmental remediation 12,577,544 11,231,039
Other provisions and allowances 11,445,354 18,656,518
Total deferred tax assets 46,778,363 44,418,200
Deferred tax liabilities
Inventories - materials and spare parts 1,892,963 890,517
Property, plant and equipment 375,893,062 392,076,489
Other 32,025,429 41,148,515
Total deferred tax liabilities 409,811,454 434,115,521
Net deferred tax liabilities 363,033,091 389,697,321
The reconciliation between the income tax expense for the six-month period and that resulting from applying the
prevailing tax rate to income before tax is as follows:
2008 2007
(6 months) (6 months)
Income for the six-month period before taxes 1,361,666,686 1,073,034,463
Prevailing tax rate 35% 35%
Income for the six-month period at prevailing tax rate ( 476,583,340) ( 375,562,062)
Permanent differences at the tax rate:
Miscellaneous - net 12,559,716 2,502,882
Subtotal permanent differences at the tax rate 12,559,716 2,502,882
Subtotal ( 464,023,624) ( 373,059,180)
Overstatement of prior-year provision 12,726,987 -
Income tax expense - total (451,296,637) (373,059,180)
Current income tax expense ( 477,960,867) ( 415,247,332)
Deferred income tax benefit 26,664,230 42,188,152
(451,296,637) (373,059,180)
NOTE 12 - RESTRICTED ASSETS
In August 2007, the Branch collected a bank deposit made in its own name as collateral for a loan from a foreign
bank in fiscal year 2005. Such bank deposit amounted to US$ 1,764,705.
In August 2007, the pledge of two generators was settled in the amount of US$ 7,483,776. Such equipment was granted
as collateral for outstanding accounts payable that were paid in June 2007.
Therefore, there are no restricted assets as of June 30, 2008.
NOTE 13 - INFORMATION ON LITIGATION AND OTHER SUPPLEMENTARY MATTERS
Lawsuits were filed against the Branch, particularly with courts in labor and commercial matters. Based on the
information available, the Branch's Management and legal advisors consider that the contingent liability that might
arise from such lawsuits would not have a material adverse effect on the financial position of the Branch or the results
of its operations.
NOTE 14 - AGREEMENTS WITH THE PROVINCES OF CHUBUT AND SANTA CRUZ
The Branch entered into two investment commitments and agreements with the Argentine Provinces of Chubut (April 27,
2007) and Santa Cruz (June 25, 2007) for the extension of the term of the concession for hydrocarbon exploitation for a
ten-year period in the blocks known as Cerro Drag�n, the area of which is extended in the territory of both provinces,
and Piedra Clavada and Koluel Kaike in the province of Santa Cruz. The original term of the agreements expired between
2016 and 2017.
These agreements provided for, among other obligations, minimum investments of US$ 2,000,000,000 in the Province of
Chubut and US$ 500,000,000 in the Province of Santa Cruz to be made before 2017.
Furthermore, other investments of US$ 1,000,000,000 in the Province of Chubut and US$ 300,000,000 in the Province of
Santa Cruz are to be made before 2027 as a condition for PAE to be granted the operation agreements referred to below.
The agreements also provided for a US$ 80,000,000 investment commitment for off-shore exploration, at the Branch's
own risk, by means of two joint ventures (UTEs) with the state-owned companies Petrominera (in the case of Chubut) and
Fomicruz (in the case of Santa Cruz). The potential exploration success and future business activity imply that, an
additional investment commitment in the amount of US$ 500,000,000 be required for the development of the offshore
fields.
The creation of the UTEs referred to in the preceding paragraph is consistent with the provisions of sections 11 and
95 of the Hydrocarbon Law, which allows state-owned companies to enter into agreements and create companies,
partnerships or other associations with individuals or entities for the development of their activities.
The operation agreements executed with state-owned companies also fall within the scope of the referred legislation,
which will be enforced as from the year 2027, subject to compliance with the investment commitments and Pan American
Energy's exploration success, in developing sufficient reserves to continue with the production of the fields of those
areas as from that year.
Based on these agreements, during the remaining term of the concessions, the Branch agreed to pay to the respective
provinces an additional amount of 3% of the net revenues for certain items described in the agreements. The Branch will
also provide money for the development of infrastructure and the economic diversification of the Provinces of Chubut and
Santa Cruz. A number of grants will be awarded, loans given or guaranteed, job opportunities offered, and supplementary
actions will be performed by the Branch as well. In addition, Pan American Energy LLC agreed to dismiss the claims filed
against the Argentine Government with the International Centre for Settlement of Investment Disputes (ICSID), once the
agreements referred to in the previous paragraphs are finally approved. On June 18, 2008, the Company filed such
dismissal with the ICSID. To the date of issuance of these financial statements, the arbitration award accepting the
dismissal and deciding that the proceedings be closed has not been rendered yet.
The agreement with the province of Chubut was ratified by provincial law No. 5616 passed by the Provincial Congress
on May 24, 2007, enacted by decree No. 500/2007 and published in the Official Bulletin on May 28, 2007.
The agreement with the province of Santa Cruz was ratified by provincial law No. 3009 issued by the Provincial
Congress on March 13, 2008, enacted by decree No. 545/2008 and published in the Official Bulletin on March 27, 2008.
NOTE 15 - SUBSEQUENT EVENTS
On July 29, 2008, the remaining amount of U$S 100,000,000 corresponding to the loan agreed on May 21, 2008 was
disbursed. Details of such loan are included in Note 6.
No others events or transactions have occurred from period-end to the date of issuance of these financial statements
that would have a material effect on the financial position of the Branch or the results of its operations as of that
date.
EXHIBIT A
PROPERTY, PLANT AND EQUIPMENT (in pesos)
as of June 30, 2008 and December 31, 2007
Original values
Depreciation
Netas of Atbeginning Increases Decreases Atperiod-end
Accumulatedat Increases Accumulatedat Netas of06/30/08 Netas of12/31/07
12/31/07 of the year forthe period Transfers
beginning Decreases period-end
of the year
(1) (2)
35,025,773 63,181,291 - 2,274,207 - 65,455,498
28,155,518 608,865 - 28,764,383 36,691,115 35,025,773
6,448,071,300 14,032,607,241 117,704,572 440,499,863 4,033,863 14,586,777,813
7,584,535,941 378,995,671 2,441,862 7,961,089,750 6,625,688,063 6,448,071,300
167,859 8,149,389 20,515 - - 8,169,904
7,981,530 37,592 - 8,019,122 150,782 167,859
34,146,852 155,628,892 526,543 7,472,392 - 163,627,827
121,482,040 9,369,508 - 130,851,548 32,776,279 34,146,852
20,747,147 48,081,219 - ( 2,407,339) - 45,673,880
27,334,072 716,951 - 28,051,023 17,622,857 20,747,147
804,921,605 804,921,605 1,256,282,636 (435,132,725) 1,813,312 1,624,258,204
- - - - 1,624,258,204 804,921,605
40,170,877 40,170,877 21,571,519 (12,706,398) - 49,035,998
- - - - 49,035,998 40,170,877
Total as of 06/30/2008 15,152,740,514 1,396,105,785 - 5,847,175
16,542,999,124 7,769,489,101 389,728,587 2,441,862 8,156,775,826 8,386,223,298
7,383,251,413 12,909,726,416 2,398,016,058 - 155,001,960 15,152,740,514
7,039,238,260 769,123,691 38,872,850 7,769,489,101 7,383,251,413
(1) See Exhibit G.
(2) See depreciation policies in Note 3.2.e.
EXHIBIT B
INTANGIBLE ASSETS (in pesos)
as of June 30, 2008 and December 31, 2007
Original Values Amortization
Main account Atbeginning Increases At Accumulatedat For
Accumulatedat Netas of Netas of
of the year forthe period period-end beginning theperiod
period-end 06/30/08 12/31/07
of the year
(1) (2)
Pre-operating expenses 48,740,915 - 48,740,915 48,353,074 15,761
48,368,835 372,080 387,841
Acquisition cost of blocks 6,487,247 - 6,487,247 6,484,619 2,628
6,487,247 - 2,628
Deferred charges 63,488,027 - 63,488,027 63,488,027 -
63,488,027 - -
Total as of 06/30/2008 118,716,189 - 118,716,189 118,325,720 18,389
118,344,109 372,080
Total as of 12/31/2007 118,716,189 - 118,716,189 116,797,422 1,528,298
118,325,720 390,469
(1) See Exhibit G.
(2) See amortization policies in Note 3.2.f.
EXHIBIT C
OTHER INVESTMENTS (in pesos)
as of June 30, 2008 and December 31, 2007
Book Book
value value
Main account 06/30/2008 12/31/2007
Short-term investments
Mutual funds in foreign currency (Exhibit F) 1,125 1,138
Class: Citi Institutional Liquid Reserves
Quantity: 377 units
Quotation value: US$ 1
(US dollar)
Government securities
"Certificados de cancelaci�n de deuda impositiva" (Certificates
evidencing payment of tax liability, Government of the Province of
Chubut)
Coupons Nos. 19 and 20 1,407,016 1,500,411
Time deposits in foreign currency (Exhibit F) 3,931,647 218,595,022
Special deposit account in foreign currency (Exhibit F) 607,082,367 230,996,906
Total short-term investments 612,422,155 451,093,477
Long-term investments
Government securities:
Bonos de la Rep�blica Argentina - Discount bonds
in pesos 5.83% final maturity in 2033
Quantity: 4,821,350
Face value: $ 1
Quoted: $ 1.0515 5,069,649 5,592,766
GDP coupon pesos
Quantity: 14,306,676
Face value: $ 1
Quotation value: $ 0.0904 1,293,324 1,258,987
"Certificados de cancelaci�n de deuda impositiva" (Certificates
evidencing payment of tax liability, Government of the Province of
Chubut)
Coupons Nos. 21, 22 and 23 2,110,524 2,680,093
Shares:
Garantizar S.A.
Quantity: 2000
Class: B
Face value: $ 1 2,000 2,000
Total long-term investments 8,475,497 9,533,846
Total investments 620,897,652 460,627,323
EXHIBIT D
ALLOWANCES, PROVISIONS AND ACCRUALS (in pesos)
as of June 30, 2008 and December 31, 2007
Main account Balances atbeginning Increases forthe Decreases for the period
Balances as of06/30/08
of period
the year
Deducted from current assets:
Allowance for bad debtors in 10,197,186 - -
10,197,186
localcurrency
Allowance for obsolescence 3,309,418 - 539,794 (1)
2,769,624
ofmaterials
Total deducted from assets 13,506,604 - 539,794
12,966,810
Included in current
liabilities:
Provision for future 2,461,743 14,312 (2) -
2,476,055
compensationto personnel
Subtotal current liabilities 2,461,743 14,312 -
2,476,055
Included in non current
liabilities:
Accrual for lawsuits 20,217,498 1,936,634 (3) 310,395 (4)
21,843,737
Provision for 82,182,464 5,677,998 (5) 3,556,709 (6)
84,303,753
environmentalremediation
Provision for future 15,241,426 2,491,014 (7) 1,294,650 (8)
16,437,790
compensationto personnel
Subtotal non current 117,641,388 10,105,646 5,161,754
122,585,280
liabilities
Total included in liabilities 120,103,131 10,119,958 5,161,754
125,061,335
(1) Recoveries for the period.
(2) Transfer from the non current provision for future compensation to personnel.
(3) Charges for the period. It is made up of $ 1,404,271 included in production costs (see Exhibit G) and $ 532,363
included in administrative expenses (see Exhibit G) of the Statement of Income.
(4) Payments for the period.
(5) Charges for the period. It is made up of $ 1,162,389 included in financial results provided by liabilities, $
2,432,186 included in other income and expenses and $ 2,083,423 included in property, plant and equipment.
(6) Uses for the period.
(7) Charges for the period. They are included in financial results of the Statement of Income and in Exhibit G.
(8) It is made up of compensations paid during the period in the amount of $ 1,280,338 and the transfer referred to
in line 2 in the amount of $ 14,312.
EXHIBIT E
COST OF SALES (in pesos)
for the six-month period beginning January 1, 2008 and ended June 30, 2008, comparative with the same period of the
prior year
2008 2007
(6 months) (6 months)
Inventories at the beginning of year 172,961,162 117,701,356
Purchases 121,846,381 100,413,305
Production costs (Exhibit G) 1,512,225,532 1,128,707,359
Inventories at period-end (171,654,220) (86,145,640)
Cost of sales 1,635,378,855 1,260,676,380
EXHIBIT F
ASSETS AND LIABILITIES IN FOREIGN CURRENCY
as of June 30, 2008 and December 31, 2007
Amount in
Amount in
Type and amount offoreign currency Exchange Argentine
currency Type and amount offoreign currency Argentine currency
as of
as of
Item as of 06/30/2008 rate 06/30/2008
as of 12/31/2007 12/31/2007
US$ Euros $
US$ Euros
ASSETS
CURRENT ASSETS
Cash on hand and in banks
Cash on hand - 4,370 4.7011 20,544 -
- 4,370 19,981
44,661 - 2.985 133,314 153,858
53,298 165,702 185,683
Cash in banks
Domestic 27,227 - 2.985 81,273
25,275 78,581
Foreign 67,964 - 2.985 202,874 284,147
32,246 100,253 178,834
Investments
Time deposits in foreign 1,317,135 - 2.985 3,931,647
70,310,396 218,595,022
currency
Foreign mutual funds 377 - 2.985 1,125
366 1,138
Special deposit account in 203,377,677 - 2.985 607,082,367
74,299,423 230,996,906
foreign currency
Accounts receivable
Domestic 301,310,410 - 2.985 899,411,573
116,860,806 363,320,247
Foreign 2,801,349 - 2.985 8,362,028 907,773,601
7,697,427 23,931,302 387,251,549
Foreign related companies 855,982 - 2.985 2,555,107
- -
Other receivables
Expenses recoverable - foreign 998,616 - 2.985 2,980,869
618,626 1,923,308
Miscellaneous - domestic 448,642 - 2.985 1,339,195
435,222 1,353,106
Miscellaneous - foreign 3,589,227 - 2.985 10,713,842 12,053,037
2,612,750 8,123,039 9,476,145
Foreign affiliated companies 3,785,147 - 2.985 11,298,665
735,516 2,286,719
Inventories
Advances to suppliers -
foreign 34,978 - 2.985 104,410
184,212 - 572,715
Total current assets 518,659,392 4,370 1,548,218,833
273,865,563 4,370 851,468,019
NON CURRENT ASSETS
Other receivables
Miscellaneous - domestic 4,417,048 - 2.985 13,184,889
4,601,062 - 14,304,701
Total non current assets 4,417,048 - 13,184,889
4,601,062 - 14,304,701
Total assets 523,076,440 4,370 1,561,403,722
278,466,625 4,370 865,772,720
US$ = US dollar
EXHIBIT F
(Cont.)
ASSETS AND LIABILITIES IN FOREIGN CURRENCY
as of June 30, 2008 and December 31, 2007
Amount in
Amount in
Type and amount Exchange Argentine currency
Type and amount Argentine currency
offoreign currency as of
offoreign currency as of
Item as of 06/30/2008 rate 06/30/2008
as of 12/31/2007 12/31/2007
US$ $
US$
LIABILITIES
CURRENT LIABILITIES
Accounts payable
Trade - domestic 40,817,860 3.025 123,474,026
48,454,730 152,583,946
Trade - foreign 11,957,510 3.025 36,171,467 159,645,493
2,260,353 7,117,852 159,701,798
Affiliated companies - 482,440 3.025 1,459,381
1,039,475 3,273,306
domestic
Affiliated companies - foreign 1,050,291 3.025 3,177,131 4,636,512
606,618 1,910,240 5,183,546
Loans
Unsecured notes payable - 159,000,000 3.025 480,975,001
82,000,000 258,218,000
domestic
Unsecured notes payable -
foreign
Interest accrued on 75,260,000 3.025 227,661,500 708,636,501
46,818,827 147,432,487 405,650,487
bonds and notes payable
24,436,544 3.025 73,920,547
24,081,660 75,833,146
Total current liabilities 313,004,645 946,839,053
205,261,663 646,368,977
NON CURRENT LIABILITIES
Accounts payable
Miscellaneous liabilities - 5,510,148 3.025 16,668,197
5,510,148 17,351,455
foreign
Loans
Bonds - foreign 350,000,000 3.025 1,058,750,000
350,000,000 1,102,150,000
Unsecured notes payable - -
15,000,000 47,235,000
domestic
Unsecured notes payable - 785,075,000 3.025 2,374,851,875 2,374,851,875
582,780,000 1,835,174,219 1,882,409,219
foreign
Total non current liabilities 1,140,585,148 3,450,270,072
953,290,148 3,001,910,674
Total liabilities 1,453,589,793 4,397,109,125
1,158,551,811 3,648,279,651
US$ = US dollar
EXHIBIT G
INFORMATION REQUIRED BY ART. 64, CLAUSE 1b) OF LAW 19550, for the six-month period beginning January 1, 2008 and
ended June 30, 2008, comparative with the same period of the prior year (in pesos)
Items Productioncosts Administrativeexpens Total 2008 Total 2007
es
(6 months) (6 months)
Fees and compensation for 10,150,378 10,755,141 20,905,519 20,275,467
services
Salaries, wages and benefits 100,921,456 18,650,553 119,572,009 87,524,525
topersonnel
Defined benefit plans to 3,225,790 1,599,679 4,825,469 4,248,657
personnel(Note 3 2 j)
Social security contributions 12,219,458 4,095,912 16,315,370 10,374,477
Taxes, assessments and other 594,675,684 86,183,655 680,859,339 405,411,557
contributions
Depreciation of property, 386,064,407 3,664,180 389,728,587 405,625,069
plant and equipment(Exhibit A)
Intangible asset amortization 18,389 - 18,389 1,369,020
(Exhibit B)
Transportation, freight and 69,857,083 39,055 69,896,138 63,951,400
storage expenses
Contracted services 253,338,475 3,246,814 256,585,289 172,638,141
Travel and accommodation 7,815,602 2,301,962 10,117,564 6,530,898
expenses
Building rentals and 20,535,366 6,247,711 26,783,077 14,516,892
maintenance
Environmental remediation and 20,002,147 - 20,002,147 25,286,069
rights of way
Lawsuits (Exhibit D) 1,404,271 532,363 1,936,634 963,378
Obsolescence of materials - - - 175,391
Production, exploration and 31,997,026 352,796 32,349,822 32,768,128
administrativegeneral expenses
Total 2008 (6 months) 1,512,225,532 137,669,821 1,649,895,353
Total 2007 (6 months) 1,128,707,359 122,951,710 1,251,659,069
EXHIBIT H
Balance sheet as of June 30, 2008 and December 31, 2007
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM INVESTMENTS, LOANS, RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables
Payables Loans
06/30/2008 12/31/2007 06/30/2008 12/31/2007 06/30/2008
12/31/2007 06/30/2008 12/31/2007
Total amount without any 1,295,324 (1) 1,260,987 117,960,085 (3) 101,806,117 658,928,741
664,952,181 - -
established term
To become due:
Up to 3 months 611,718,647 450,344,176 1,024,729,436 515,078,238 739,117,363
754,732,049 817,944,480 566,991,809
From 3 to 6 months - - 1,890,718 1,718,540 619,014
174,757,551 30,250,000 123,035,173
From 6 to 9 months 703,508 670,023 1,796,827 1,674,756 619,014
615,436 50,835,125 55,280,695
From 9 to 12 months - 79,278 2,212,547 1,610,016 274,182,324
30,986,936 123,722,500 -
From 1 to 2 years 1,407,016 1,340,047 5,903,609 5,651,924 235,571
229,339 752,447,575 655,218,728
From 2 to 3 years 703,508 1,340,046 4,676,873 3,793,343 -
- 928,907,925 293,083,728
From 3 to 4 years - - 1,939,900 1,574,957 -
- 727,240,250 686,708,728
From 4 to 5 years - - 1,307,296 848,516 -
- 345,334,000 686,708,728
From 5 to 6 years - - 563,289 382,649 -
- 281,052,750 222,237,526
From 6 to 7 years - - - - -
- 193,327,750 189,236,006
From 7 to 8 years - - - - -
- 64,629,125 113,722,986
From 8 to 9 years - - - - -
- 93,170,000 83,398,116
From 9 to 10 years - - - - -
- 47,492,500 36,163,116
From 10 to 11 years - - - - -
- - 18,081,557
Over 11 years 5,069,649(2) 5,592,766(2) - - -
- - -
Subtotal 620,897,652 460,627,323 1,162,980,580 634,139,056 1,673,702,027
1,626,273,492 4,456,353,980 3,729,866,896
Other items that are not to be - - 16,425,033 15,541,887 -
- - -
collected or paid in cash
Total 620,897,652 460,627,323 1,179,405,613 649,680,943 1,673,702,027
1,626,273,492 4,456,353,980 3,729,866,896
(1) It includes $ 1,293,324 relating to GDP coupons in pesos. The government securities linked to the GDP become due
on 12/31/2035. However, in the event a certain GDP rate growth is exceeded in the country, the bondholders shall be
entitled to annual payments.
(2) It is amortized as from 06/30/2024 in 20 semiannual installments (on 06/30 and 12/31 of each year), the final
maturity of which is on 12/31/2033.
(3) It includes the overdue receivables detailed in item 3.a of the supplementary information.
EXHIBIT H
Balance sheet as of June 30, 2008 and December 31, 2007 (Cont.)
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM INVESTMENTS, LOANS, RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables
Payables Loans
06/30/2008 12/31/2007 06/30/2008
12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007
Pesos Rate Pesos Rate Pesos Rate Pesos Rate Pesos
Rate Pesos Rate Pesos Rate Pesos Rate Pesos
314,900,000 - - - - - - - -
- - - - 7.125 302,500,000 7.125 314,900,000
1,887,731 - - - - - - - -
- - - - - - 5.45 1,887,731
64,199 - - - - - - - -
- - - - - - 6.18 64,199
279,914,610 - - - - - - - -
- - - - 7.56 252,088,375 7.56 279,914,610
354,262,500 - - - - - - - -
- - - - 6.97 306,281,250 6.97 354,262,500
47,235,000 - - - - - - - -
- - - - 5.66 (2) 45,375,000 5.66 (2) 47,235,000
31,490,000 - - - - - - - -
- - - - 8.00 30,250,000 8.00 31,490,000
787,250,000 - - - - - - - -
- - - - 7.75 756,250,000 7.75 787,250,000
- 4.00 3,517,540 4.00 4,180,504 - - - -
- - - - - - - -
263,824,044 - - - - 8.00 18,096,664 8.00 15,196,646
- - - - 11.26 240,195,057 9.83 263,824,044
- - - - - 8.50 1,336,921 8.50 1,654,064
- - - - - - - -
1,267,752,666 - - - - - - - -
- - - - 4.71 1,983,643,751 7.14 1,267,752,666
305,453,000 - - - - - - - -
- - - - 5.39 465,850,000 5.76 305,453,000
- 2.31 611,015,139 4.62 449,593,066 4.50 7,144 4.50 14,286
- - - - - - -
- 5.83 5,069,649 5.83 5,592,766 - - -
- - - - - - -
- 1,295,324 1,260,987 - 1,159,964,884 632,815,947
1,673,702,027 1,626,273,492 - -
3,654,033,750(1) 620,897,652 460,627,323 1,179,405,613 649,680,943
1,673,702,027 1,626,273,492 4,382,433,433(1) 3,654,033,750(1)
(1) It only includes principal at face value.
(2) Plus additional interest calculated in relation to the economic performance of Pan American Energy LLC.
EXHIBIT I
Balance sheet as of June 30, 2008 and December 31, 2007
PARTICIPATION IN JOINT VENTURES (in pesos)
AnticlinalFunes AguadaPichana SanRoque
Acambuco EstanciaLa Escondida Bandurria Costa AfueraArgentina Bloque 40
Costa AfueraArgentina Bloque 46 AnticlinalFunes
50.00% 80.00% 62.50% 18.18% 18.18% 16.47 % 16.47 % 52.00 %
52.00 % 25.00% 25.00% 18.18% 18.18% 50.00% 50.00% 50.00% 50.00%
80.00% 80.00%
12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007
06/30/2008 12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007
06/30/2008 12/31/2007 06/30/2008 12/31/2007
ASSETS
CURRENT ASSETS
- 6,801 6,737 218,001 162,872 80,817 21,005 283,752
115,536 20,025 28,033 41,365 68,531 - - - - 6,801 -
29,265 1,052,364 1,022,484 11,312,881 9,917,410 6,473,724 5,035,286 701,092
611,434 419,897 1,171,815 907,126 8,948 63,424 63,424 29,265 29,265
1,052,364 911,323
- - 6,518,514 11,173,835 9,565,286 9,298,675 9,049,887 799,985
2,697,006 81,331 80,115 - - - - - - - -
29,265 1,059,165 7,547,735 22,704,717 19,645,568 15,853,216 14,106,178
1,784,829 3,423,976 521,253 1,279,963 948,491 77,479 63,424 63,424 29,265
29,265 1,059,165 911,323
NON CURRENT ASSETS
1,113,741 4,269,682 132,339,618 242,284,014 253,948,755 188,357,054 189,303,216
728,331,188 673,640,204 5,858,906 5,587,925 1,027,429 2,117,425 13,835,541 13,835,541
390,425 1,113,741 4,269,682 3,820,656
- - - - - - - -
- - 2,628 - - - - - - - -
1,113,741 4,269,682 132,339,618 242,284,014 253,948,755 188,357,054 189,303,216
728,331,188 673,640,204 5,858,906 5,590,553 1,027,429 2,117,425 13,835,541 13,835,541
390,425 1,113,741 4,269,682 3,820,656
1,143,006 5,328,847 139,887,353 264,988,731 273,594,323 204,210,270 203,409,394
730,116,017 677,064,180 6,380,159 6,870,516 1,975,920 2,194,904 13,898,965 13,898,965
419,690 1,143,006 5,328,847 4,731,979
EXHIBIT I
(Cont.)
Balance sheet as of June 30, 2008 and December 31, 2007
PARTICIPATION IN JOINT VENTURES (in pesos)
Anticlinal Funes Aguada Pichana San Roque
Acambuco Estancia La Escondida Bandurria Costa AfueraArgentina Bloque 40
Costa AfueraArgentina Bloque 46 Anticlinal Funes
35.00% 80.00% 62.50% 18.18% 18.18% 16.47 % 16.47 % 52.00 %
52.00 % 25.00% 25.00% 18.18% 18.18% 50.00% 35.00% 50.00% 35.00%
80.00% 80.00%
12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007
06/30/2008 12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007 06/30/2008 12/31/2007
06/30/2008 12/31/2007 06/30/2008 12/31/2007
LIABILITIES
CURRENT LIABILITIES
- 233,779 3,747,969 47,346,659 44,692,923 14,412,661 14,300,600
28,879,855 31,815,503 379,214 1,201,226 304,092 509,626 - - - -
233,779 1,078,756
- 7,015 754,526 - - - -
1,387,638 659,944 - - - - - - - - 7,015
6,711
- 9,549 123,464 796,337 215 23,150 -
1,490,938 275,367 115,879 111,921 27,065 6,793 - - - - 9,549
2,654
- 250,343 4,625,959 48,142,996 44,693,138 14,435,811 14,300,600
31,758,431 32,750,814 495,093 1,313,147 331,157 516,419 - - - -
250,343 1,088,121
NON CURRENT LIABILITIES
- - 3,261,912 219,132 219,132 876,528 876,528
1,912,040 1,741,273 - - - - - - - - -
-
- 1,052,832 10,608,086 6,327,900 6,401,074 8,772,280 8,873,866
3,762,167 3,459,737 82,686 83,641 - - - - - -
1,052,832 551,850
- - 6,147,461 78,963 76,201 195,698 436,293
2,868,838 2,458,378 - - - - - - - - -
-
- 1,052,832 20,017,459 6,625,995 6,696,407 9,844,506 10,186,687
8,543,045 7,659,388 82,686 83,641 - - - - - -
1,052,832 551,850
- 1,303,175 24,643,418 54,768,991 51,389,545 24,280,317 24,487,287
40,301,476 40,410,202 577,779 1,396,788 331,157 516,419 - - - -
1,303,175 1,639,971
1,143,006 4,025,672 115,243,935 210,219,740 222,204,778 179,929,953 178,922,107
689,814,541 636,653,978 5,802,380 5,473,728 1,644,763 1,678,485 13,898,965 13,898,965
419,690 1,143,006 4,025,672 3,092,008
1,143,006 5,328,847 139,887,353 264,988,731 273,594,323 204,210,270 203,409,394
730,116,017 677,064,180 6,380,159 6,870,516 1,975,920 2,194,904 13,898,965 13,898,965
419,690 1,143,006 5,328,847 4,731,979
EXHIBIT I
(Cont.)
Statement of income for the six-month period beginning January 1 and ended June 30, 2008, comparative with the same
period of the prior year
PARTICIPATION IN JOINT VENTURES (in pesos)
Aguada Pichana San Roque
Acambuco Estancia La Escondida Bandurria Costa AfueraArgentina Bloque 40
Costa AfueraArgentina Bloque 46 Anticlinal Funes
25.00% 62.50% 62.50% 18.18% 18.18% 16.47%
16.47% 52.00% 52.00% 25.00% 25.00% 18.18%
18.18% 18.18% 18.18% 18.18% 18.18% 18.18%
2007 2008 2007 2008 2007 2008
2007 2008 2007 2008 2007 2008 2008
2008 2008 2008 2008 2008
(6 months) (6 months) (6 months) (6 months) (6 months) (6 months) (6
months) (6 months) (6 months) (6 months) (6 months) (6 months)
(6 months) (6 months) (6 months) (6 months) (6 months) (6 months)
STATEMENT OF INCOME
- - - - - - -
- - - - - - -
- - - -
(1,380,001) (33,521,303) (25,914,491) (85,784,832) (46,898,880) (48,362,335)
(27,267,181) (90,662,101) (84,338,384) (1,942,714) (1,380,001) -
- - - - - -
(1,380,001) (33,521,303) (25,914,491) (85,784,832) (46,898,880) (48,362,335)
(27,267,181) (90,662,101) (84,338,384) (1,942,714) (1,380,001) -
- - - - - -
- - - - - - -
- - - - - - -
- - - -
(1,380,001) (33,521,303) (25,914,491) (85,784,832) (46,898,880) (48,362,335)
(27,267,181) (90,662,101) (84,338,384) (1,942,714) (1,380,001) -
- - - - - -
19,755 ( 351,308) ( 354,819) ( 184,008) ( 107,439) ( 255,462) (
206,956) ( 44,554) ( 95,542) ( 1,007) 19,755 1,371
1,371 1,371 1,371 1,371 1,371 1,371
- 316,078 1,146,405 87,211 6,084,434 59,680
46,493 577,235 78,907 - - (783,473) (783,473)
(783,473) (783,473) (783,473) (783,473) (783,473)
(1,360,246) (33,556,533) (25,122,905) (85,881,629) (40,921,885) (48,558,117)
(27,427,644) (90,129,420) (84,355,019) (1,943,721) (1,360,246)
(782,102) (782,102) (782,102) (782,102) (782,102) (782,102)
(782,102)
(1) No sales were recorded in the joint ventures because production is directly assigned to each participant.
FINANCIAL STATEMENTS as of June 30, 2008
REPORTING SUMMARY REQUIRED BY RESOLUTION No. 290/97 OF THE NATIONAL SECURITIES COMMISSION
1. Comment on the Branch's activity
1.1. Operating activities
Pan American Energy LLC (Argentine Branch) is mainly engaged in the exploration, development and production of
hydrocarbons. The Head Office of the Branch is Pan American Energy LLC, which also has various subsidiaries and
affiliates that carry out activities in Argentina and other Mercosur countries. BP and Bridas Corporation hold interests
that account for 60% and 40%, respectively of the Branch's ownership.
During the first semester of 2008, with a daily average production of 225.8 thousand barrels of oil, the Branch
together with subsidiaries of Head Office that develop their activities in the country rank second in the production of
natural gas and oil in Argentina.
1.2. Issuance of bonds
On February 11, 1997, Amoco Argentina Oil Company (Argentine Branch) issued the Second Series of bonds in the amount
of US$ 100,000,000 due in ten years at a rate of 6.75%. The bonds were paid upon maturity on February 1, 2007. Such
issuance was made under a short and medium term bond program in the amount of US$ 200,000,000, authorized by Resolution
No. 10982 issued by the CNV on July 13, 1995.
As a result of the transfer of assets and liabilities referred to in the second paragraph of note 1 to these
financial statements, Amoco Argentina Oil Company (Argentine Branch) transferred the above mentioned bonds to Pan
American Energy LLC (Argentine Branch). Such bonds were guaranteed by BP Company North America Inc. until repayment in
February 2007.
On February 21, 2002, through Resolution No. 14123, the CNV authorized the Global Program for the Issuance of Bonds
of Pan American Energy LLC (Argentine Branch) (the "Global Program") in the total amount of US$ 1,000,000,000 and for a
five-year term.
On October 27, 2004, the Branch issued Bonds Class 3 in the amount of US$ 100,000,000 under the Global Program. The
bonds become due in five years (October 27, 2009) with a 7.125% annual fixed interest rate to be paid on a half-yearly
basis. The price of the issuance was 99.483% of the nominal value. The funds derived from this issuance were allocated
to investments in property, plant and equipment and repayment of loans.
On August 9, 2006, the Branch issued Bonds Class 4 in the amount of US$ 250,000,000 under the Global Program, to be
repaid in two equal installments becoming due on February 9, 2011 and February 9, 2012, with interest accruing at an
annual fixed interest rate of 7.75% to be paid on a half-yearly basis. The price of the issuance was 100.00% of the
nominal value. The funds obtained from this issue were allocated to investments in property, plant and equipment and
repayment of loans.
Bonds Class 3 and Class 4 are guaranteed by Pan American Energy LLC.
1.3. Loan agreements
On July 11, 2005, the Branch obtained from the International Finance Corporation (IFC) a loan in the amount of US$
250,000,000 guaranteed by Pan American Energy LLC and consisting of three tranches:
- "A" in the amount of US$ 100,000,000 with interest accruing at an annual fixed rate of 7.56%, through an interest
rate swap with IFC, amortizable on a six-month installments basis, and becoming due in July 2015,
- "B" in the amount of US$ 135,000,000, at an annual fixed rate of 6.97%, through an interest rate swap with IFC,
amortizable on a six-month installments basis, and becoming due in July 2012, and
- "C" in the amount of US$ 15,000,000, at an annual fixed base rate of 5.66% plus additional interest calculated in
relation to Pan American Energy LLC�s economic performance, becoming due in July 2016.
The first repayment of principal for tranches "A" and "B" was made on January 15, 2007.
The funds obtained were used to partially fund the 2005 investment program in San Jorge Gulf.
On July 13, 2007, the Branch obtained from the International Finance Corporation (IFC) a loan in the amount of US$
550,000,000, consisting of two tranches which accrue interest at a variable rate:
- "A" in the amount of US$ 150,000,000, amortizable on a six-month installments basis and becoming due in April
2018; and
- "B", Sub-tranch "1" in the amount of US$ 158,500,000, amortizable on a six-month installments basis and becoming
due in April 2014, and "B", Sub-tranch "2" in the amount of US$ 241,500,000, amortizable on a six-month installments
basis and becoming due in April 2015.
The loan is guaranteed by Pan American Energy LLC and the funds obtained are being applied to partially fund the
investment program that the Company will undertake in the Cerro Drag�n area, in the San Jorge Gulf basin, located in the
provinces of Santa Cruz and Chubut.
As of December 31, 2007, the amount of US$ 400,000,000 of such loan had been disbursed and in January 2008, the
remaining amount of US$ 150,000,000 was disbursed.
On May 21, 2008, Pan American Energy, Argentine Branch, obtained a loan from an international bank syndicate in the
amount of U$S 200,000,000, the final maturity of which is on May 23, 2011. The loan will be repaid in 3 semiannual
principal installments as from the second year, accruing interest at a variable Libor rate payable every six months.
The bank syndicate was led by Calyon New York Branch, JP Morgan Securities Inc. and ABN AMRO Bank N.V., whereas
Banco Ita� Buen Ayre S.A. acts as the local intermediary bank. Rabobank Nederland New York Branch, Natixis and Export
Development Canada participated as well.
As of June 30, 2008, an amount of U$S 100,000,000 has been disbursed.
The loan is guaranteed by Pan American Energy LLC and the funds obtained must be applied to the payment of property,
plant and equipment and inventories.
The Branch considers that its access to credit lines is appropriate in order to meet its commercial and financial
obligations, even though it presents a negative working capital.
2. Balance sheet items as of June 30, 2008 (in pesos)
Balance Balance Balance
Balance Balance
sheet sheet sheet
sheet sheet
as of 06/30/2008 as of 06/30/2007 as of 06/30/2006 as of
06/30/2005 as of 06/30/2004
Current assets 1,927,865,521 1,241,264,332 1,400,149,379
822,786,081 480,892,411
Non current assets 8,448,611,844 6,460,834,780 5,312,707,727
4,512,698,737 3,852,458,770
Total 10,376,477,365 7,702,099,112 6,712,857,106
5,335,484,818 4,333,351,181
Current liabilities 2,037,672,653 2,438,176,072 2,030,663,667
1,503,369,064 1,271,582,377
Non current liabilities 4,114,227,091 2,480,443,659 1,797,361,149
1,354,502,641 1,375,804,599
Subtotal 6,151,899,744 4,918,619,731 3,828,024,816
2,857,871,705 2,647,386,976
Account with Head Office 3,763,338,614 2,322,240,374 2,423,593,283
2,016,374,106 1,246,504,205
Capital allocated to theBranch 221,779,007 221,779,007 221,779,007
221,779,007 200,000,000
Capital adjustment 239,460,000 239,460,000 239,460,000
239,460,000 239,460,000
Total 10,376,477,365 7,702,099,112 6,712,857,106
5,335,484,818 4,333,351,181
3. Income statement items as of June 30, 2008 (in pesos)
Six-month period Six-month period Six-month period
Six-month period Six-month period
ended 06/30/2008 ended 06/30/2007 ended 06/30/2006 ended
06/30/2005 ended 06/30/2004
Ordinary operating income 1,385,510,042 1,226,862,254 1,427,616,376
801,494,558 689,942,200
Financial results ( 32,971,820) ( 138,523,128) ( 56,737,316)
1,546,368 ( 62,877,489)
Other income and expenses - (9,128,464) (15,304,663) (33,934,774)
(13,437,733) (19,031,915)
net
Income before taxes 1,361,666,686 1,073,034,463 1,336,944,286
789,603,193 608,032,796
Income tax current ( 477,960,867) ( 415,247,332) ( 499,445,409)
(294,289,270) (261,401,198)
Deferred income tax 26,664,230 42,188,152 26,790,567
14,507,423 105,753,228
Net income 910,370,049 699,975,283 864,289,444
509,821,346 452,384,826
4. Statistical data
Six-month Six-month Six-month
Six-month Six-month
period ended period ended period ended period
ended period ended
06/30/2008 06/30/2007 06/30/2006
06/30/2005 06/30/2004
in cubic meters in cubic meters in cubic meters in cubic
meters in cubic meters
Production of crude oil 3,030,803 3,063,799 2,988,022
2,935,635 2,805,429
Sale of crude oil 3,020,121 3,163,036 3,134,684
3,078,111 2,748,191
in thousand cubic in thousand cubic in thousand cubic in
thousand cubic in thousand cubic meters
meters meters meters
meters
Production of natural gas 2,800,309 2,467,076 2,339,533
2,087,104 2,067,614
Sale of natural gas 2,798,919 2,508,143 2,238,184
2,140,738 2,015,552
Transportation of natural gas - 2,756 6,646
181,507 174,343
in tons in tons in tons in
tons in tons
Production of L.P.G. 47,613 40,155 46,785
30,541 30,140
Sale of L.P.G. 42,095 47,701 41,129
36,522 34,837
5. Indexes
Financial statements Financial statements Financial statements Financial statements
Financial statements
as of06/30/2008 as of06/30/2007 as of06/30/2006 as of06/30/2005
as of06/30/2004
Liquidity 0.95 0.51 0.69 0.55
0.38
Indebtedness 1.46 1.77 1.33 1.15
1.57
Tied -up funds 0.81 0.84 0.79 0.85
0.89
Solvency 0.69 0.57 0.75 0.87
0.64
6. Business prospects
Pan American Energy LLC (Argentine Branch) is working to maintain and increase its operating efficiency in
connection with the oil and gas exploration and production, to continue increasing its share in hydrocarbon production
in Argentina, satisfying in this way the needs derived from a sustained growth rate of the country's economy as well as
to comply with its existing contractual obligations. The Branch strives to provide its personnel and contractors with
healthy and safe working conditions while preserving the environment.
The Branch is strongly engaged with the concerns and challenges posed by the communities where it operates, by
developing different social responsibility programs (CSR).
During the first half of 2008, the Branch's oil production decreased by 1.1% and natural gas production rose by
13.5% with respect to the same period of the prior fiscal year. The decrease in oil production was due to union
conflicts mentioned below. The active investment program successfully implemented by Pan American Energy in the last
years has allowed it to double hydrocarbon production from 1999 to 2006.
After the 2002 crisis, the country has managed to achieve high gross domestic product (GDP) growth with relatively
low inflation rates though growing recently and, a stable currency, with unemployment rates that have been significantly
reduced.
In the first half of 2008, the GDP grew by 7.7% compared with the same period of the prior fiscal year, which
indicates that a growing trend - initiated 25 quarters ago - continues. It is estimated that the gross domestic product
will increase by 6.2% in 2008. The unemployment rate is about 7.0%.
.
In the first half of 2008, the fiscal surplus totaled 20,310 million pesos, thus disclosing a 41.8% increase
compared to the same period of the prior fiscal year. The level of foreign indebtedness as of March 31, 2008 increased
with respect to the same date of the prior fiscal year and amounted to US$ 144,493 million. The country's international
reserves amounted US$ 47,516 million as of June 30, 2008, 10.1% higher than those for a year before.
The increase in the oil industry costs is a source of concern, since it clearly exceeds the general increase in
prices.
As previously informed, revenues from the exploration and production of oil and gas were affected by the amendments
to the regulations in force. In the case of oil, as from March 2002, an increasing rate of export tariffs on exports has
been applied, which has also affected the sales prices in the domestic market. On November 15, 2007, the Ministry of
Economy and Production of Argentina issued Resolution 394/07 by which export tariffs on oil and by products exports were
significantly increased for sales of oil above US$ 60.9 / barrel.
In the case of natural gas, in January 2002, the wellhead price of natural gas was redenominated into pesos and
frozen and, afterwards, export tariffs on exports and quantitative restrictions to them were established. In April 2004,
the Secretary of Energy and the natural gas producers signed an agreement named "regularization of wellhead prices".
This agreement had a term that had expired on December 31, 2006, after which, and at the request of the related
authorities, a new agreement was signed that will be in force until December 31, 2011.
The new agreement, approved in June 2007 by Resolution 599/07 of the Secretary of Energy, compels producers
(including the Branch) to satisfy the domestic demand up to the levels reached in 2006 plus the growth of the
residential market during the validity thereof by setting out new guidelines for price changes.
In relation to export tariffs on gas exports, on July 25, 2006, the Ministry of Economy and Production of Argentina,
through Resolution No. 534/2006, increased them to 45% of the price established under the form contract entered into
between Argentina and Bolivia (for the second quarter of 2008, this amount was US$ 7.80 per million BTU). On March 10,
2008, the Ministry of Economy and Production of Argentina, through Resolution No. 127/2008 amended the referred
resolution and established that export tariffs would be equal to 100% of the highest import price of natural gas into
Argentina at any time. In the periods where liquefied natural gas was imported to the country (June-July), such amount
was applied as an import reference price, ranging from US$ 14.60 to US$ 17.2 per million BTU. These amounts were
established by external notes issued by the Customs Authorities.
In the first half of 2008, the various unions gathering workers who perform tasks in the oil fields operated by the
Branch made several claims for salary increases, reclassifications, labor continuity (for UOCRA personnel), enforcement
of the collective bargaining agreements and other labor benefits. Such claims were supported by various action measures
particularly affecting the province of Santa Cruz and, as a result, the Piedra Clavada and Koluel Kaike blocks came to a
complete standstill in May and the drilling, completion and pulling activities were partially interrupted in the
province of Chubut. The Business Chambers reached collective bargaining agreements with the Workers Unions of Neuqu�n
(both Private Oil Workers and Hierarchy Employees) and with the Private Oil Workers Union of Santa Cruz. On the other
hand, the collective bargaining agreements of Hierarchy Employees of the Southern Patagonia and Private Oil Workers of
Chubut are under negotiation.
During the first half of 2008, the Branch has continued with its investment plans with a view to expanding its
business and contributing to satisfying the growing energy demand. The commitments assumed referred to in the following
paragraphs strengthen these expansion plans.
On December 6, 2006, Law No. 26197, known as "Hydrocarbons Short Law", was passed. This law complied with the
constitutional provision of transferring the original ownership of the natural resources contained in the subsurface
from the Federal State to the producing provinces where oil fields are located.
Within this framework, the Branch entered into with the Argentine provinces of Chubut (04/27/2007) and Santa Cruz
(06/25/2007) two investment commitments and agreements for the extension of the term of the concession for hydrocarbon
exploitation for a ten-year period in the blocks known as Cerro Drag�n, the area of which is extended in the territory
of both provinces, and Piedra Clavada and Koluel Kaike in the province of Santa Cruz. The agreements expired between
2016 and 2017.
These agreements provided for, among other obligations, minimum investments of US$2,000,000,000 in the Province of
Chubut and of US$ 500,000,000 in the Province of Santa Cruz to be made before 2017.
Furthermore, other investments of US$ 1,000,000,000 in the Province of Chubut and US$ 300,000,000 in the Province of
Santa Cruz are to be made before 2027 as a condition for PAE to be granted the operation agreements referred to below.
The agreements also provided for a US$ 80,000,000 investment commitment for off-shore exploration, at the Branch's
own risk, by means of two joint ventures (UTEs) with the state-owned companies Petrominera (in the case of Chubut) and
Fomicruz (in the case of Santa Cruz). The potential exploration success and future business activity imply that, an
additional investment commitment in the amount of US$ 500,000,000 be required for the development of the offshore
fields.
The creation of the UTEs referred to in the preceding paragraph is consistent with the provisions of sections 11 and
95 of the Hydrocarbon Law, which allows state-owned companies to enter into agreements and create companies,
partnerships or other associations with individuals or entities for the development of their activities.
The operation agreements executed with state-owned companies also fall within the scope of the referred legislation,
which will be enforced as from the year 2027, subject to compliance with the investment commitments and Pan American
Energy's exploration success, in developing sufficient reserves to continue with the production of the fields of those
areas as from that year.
Based on these agreements, during the remaining term of the concessions, the Branch agreed to pay to the respective
provinces an additional amount of 3% of the net revenues for certain items described in the agreements. The Branch will
also provide money for the development of infrastructure and the economic diversification of the Provinces of Chubut and
Santa Cruz. A number of grants will be awarded, loans given or guaranteed, job opportunities offered, and supplementary
actions will be performed by the Branch as well. In addition, Pan American Energy LLC agreed to dismiss the claims filed
against the Argentine Government with the International Centre for Settlement of Investment Disputes (ICSID), once the
agreements referred to in the previous paragraphs are finally approved. On June 18, 2008, the Company filed such
dismissal with the ICSID. To the date of issuance of these financial statements, the arbitration award accepting the
dismissal and deciding that the proceedings be closed has not been rendered yet.
The agreement with the province of Chubut was ratified by provincial law No. 5616 passed by the Provincial Congress
on May 24, 2007, enacted by decree No. 500/2007 and published in the Official Bulletin on May 28, 2007.
The agreement with the province of Santa Cruz was ratified by provincial law No. 3009 issued by the Provincial
Congress on March 13, 2008, enacted by decree No. 545/2008 and published in the Official Bulletin on March 27, 2008.
The execution of these agreements proposes a new horizon to sustain the increase in production and reserves
maintained by Pan American Energy in the Golfo San Jorge basin. This new horizon and other regulatory and market
conditions will allow addressing long-term projects requiring sound investments, new technologies and teams working for
the future.
On January 28, 2008, Pan American Energy communicated that, as a result of its permanent exploration activities in
the Cerro Drag�n block, it has been able to find new oil and natural gas reserves which were identified in the Northern
and Central areas of such block in the Province of Chibut, totaling for one hundred million equivalent oil barrels
(boe).
Buenos Aires, August 8, 2008
Daniel Grinstein
Attorney-in-fact
FINANCIAL STATEMENTS AS OF JUNE 30, 2008
SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS AS OF JUNE 30, 2008 REQUIRED BY SECTION 68 OF THE REGULATIONS
OF THE BUENOS AIRES STOCK EXCHANGE
Overall issues about the Branch's activity:
1.Specific and significant legal requirements which imply contingent suspensions or changes of benefits provided for
by such regulations:
The Branch is not subject to specific and significant legal requirements, which may imply the contingent suspension
or change of benefits provided for by such regulations, except as disclosed in notes to the financial statements.
2.Significant changes in the Branch's activities or other similar circumstances that affect the comparison of the
financial statements with prior years, or with those to be presented in future years.
There are no changes in the Branch's activities that significantly affect the comparison of the financial statements
as of June 30, 2008.
3.Breakdown of receivables and payables as per section 68, subsection 3.
3.a) The breakdown of receivables and payables based on the maturity thereof is disclosed in Exhibit H to the
financial statements.
The following receivables without any established term included in the referred Exhibit H are due:
Current receivables
$
Due from April to June 2008 10,394,713
Due from January to March 2008 11,770,579
Due from October to December 2007 20,985,759
Due from July to September 2007 12,853,440
Due from July 2006 to June 2007 13,564,206
Due from July 2005 to June 2006 7,162,104
Due from July 2004 to June 2005 1,340,018
Due from July 2003 to June 2004 318,838
Due from July 2002 to June 2003 772,775
Due from July 2001 to June 2002 147,111
Due from July 2000 to June 2001 142,732
Total 79,452,275
There are no overdue payables.
3.b) In connection with the receivables and payables in foreign currency, see Exhibit F to the financial statements.
There are no significant receivables and payables represented by securities.
3.c) There are no receivables and payables subject to adjustment clauses.
3.d) In connection with the receivables and payables that accrue interest as of June 30, 2008, see Exhibit H to the
financial statements.
4.Corporations Art. 33 Law 19550
None.
5.Receivables or loans with directors, statutory auditors, and relatives including up to the second degree:
None as of the date of issuance of these financial statements.
6.Physical counts of inventories
Based on the nature of the activity, the Branch carries out physical counts of most of its inventories. There are no
significant slow-moving inventories as of June 30, 2008 for which an allowance has not been set up.
7.Current values
The valuation method of inventories is disclosed in Note 3.2.d) to the financial statements.
8.Property, plant and equipment
No items of property, plant and equipment have been subject to appraisal.
To date, there are no property, plant and equipment items that are not in use due to obsolescence.
9.Interests in other companies
None. The Branch's participating interests in joint operations and other entities are disclosed in Note 2 to the
financial statements.
10.Recoverable value
The recoverable value of inventories and fixed assets, used as a limit to their valuation for financial reporting
purposes, have been determined based on the net realizable values and values in use, the latter defined as the expected
net cash flows that would result from both the use of the assets and the disposal thereof at the end of their useful
life.
11.Insurance
As of June 30, 2008, the insurance taken on the Branch's assets are as follows:
Covered
Insured assets Insured risks Amount
Thousand US$
Equipment, facilities and pipelines
applied to exploitation and transportation Physical damage 702,815
Equipment, facilities and pipelines
applied to exploitation and transportation Liability insurance 10,000
Wells Control, re-drilling, spill 72,037
Additionally, the Branch has taken the following policies: workers compensation insurance, directors and officers'
liability insurance and automobile liability insurance.
12.Negative and positive contingencies
To calculate the related accruals, all available elements of judgment and probability of occurrence have been
considered (see Notes 3 2 g, 10, 13 and Exhibit D to the basic financial statements).
13.Contingent events as of the date of issuance of the financial statements with moderate likelihood of occurrence,
the financial effects of which have not been fully recorded as of June 30, 2008.
None.
Irrevocable advances for future subscriptions
14. As of June 30, 2008 there are no irrevocable advances for future subscriptions.
15. There are no preferred shares as of June 30, 2008.
16. As of June 30, 2008 the Branch has no restrictions on the distributions of earnings, except as indicated in Note
10.
Buenos Aires, August 8, 2008
Daniel Grinstein
Attorney-in-fact
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